Bernanke told Schumer that the Fed was "ready to act as needed", that it was concerned about adjustable rate mortgages resetting, and that the district banks were working to limit foreclosures. As Tony Creszenzi at Miller Tabak noted, the tone of the letter was '"we are taking this as seriously as you are and will not let conditions deteriorate without a response." '

The bottom line: stocks are hostage to perceptions of a Fed rate cut. Mr. Bernanke's speech in Jackson Hole on Friday, in which he will address the housing problem, now looms very large.

In the meantime, keep your eye on the unmistakable leaders: energy and techs. The oil rally has pushed many energy stocks to within shouting distance of historic highs, and positive order trends (as evidenced by Seagate's comments today) helped techs.